3 Types of Trade Financing You Need to Know

Trade finance is a vast and complex industry. There are numerous tools available to American exporters that can make operating on the global marketplace less stressful and more profitable, and it’s crucial for U.S. exporters to understand the potential of these tools. We’ve crafted a short primer for the different types of trade financing you’ll encounter and how each can help your business.

Export Credit Insurance

One of the best ways to stay relevant and competitive in the global market is having the ability to offer competitive payment terms to your buyers.

Factoring

In some cases, you may have piles of cash sitting in your open invoices—but you may struggle to get buyers to pay. Factoring is a way to circumvent this headache without aggravating your buyers with notices asking for payment. A factor (a third party) essentially buys the invoices from you for a percentage of the total amount. The factor then secures payment from the buyer. You lose a fraction of the invoice for the factor’s service, but you get your funds much more quickly. The buyer pays the invoice when possible, which the factor is responsible for collecting.

Supply Chain Financing

New or small exporters may have trouble making their first few large sales due to issues with supply chains. If a customer wipes out your inventory, what will you have to sell to other customers? Supply chain financing and other types of pre-export financing allows your business to expand more rapidly and meet increasing demands. Such financing can provide the liquidity needed to hire additional staff, expand your operations, and restock your inventory to meet increasing demands.

As an American exporter, it’s vital to understand the tools available for growing and maintaining your business. There are countless opportunities in the global marketplace, and trade financing is invaluable for making your company a respectable presence amongst the competition. With 16 years of industry experience, Drake Finance can provide international trade finance solutions to fit your business needs.